Breaking News
Home / CA / FAQ on Elaboration of Terms ‘Infrequent Number of Sales’ in Ind AS 109

FAQ on Elaboration of Terms ‘Infrequent Number of Sales’ in Ind AS 109

FAQ on Elaboration of Terms ‘Infrequent Number of Sales’ in Ind AS 109

The ICAI clarified issues relating to the terms ‘infrequent number of sales’ or ‘insignificant in value’ in Ind AS 109. Financial Instruments, requires an entity to classify financial assets on the basis of the entity’s business model. In this regard, under a business model whose objective is to hold assets in order to collect contractual cash flows, the Standard provides that for this purpose, it is necessary to consider the frequency, value and timing of sales in prior periods.

FAQ on Elaboration of Terms ‘Infrequent Number of Sales’ in Ind AS 109

Ind AS 109 appears to envisage sale of assets held under the amortised cost category before maturity. The application guidance of Ind AS 109 states that such sales may be consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows if those sales are infrequent (even if significant in value) or insignificant in value both individually and in aggregate (even if frequent).

FAQ on Elaboration of Terms ‘Infrequent Number of Sales’ in Ind AS 109

In view of the above, the following may be clarified,

a) How should the terms ‘infrequent number of sales’ or ‘insignificant in value’ be interpreted and determined. Can indicative rebuttable thresholds be prescribed for sales that are more than insignificant in value?

b) What is the relation between the terms ‘immaterial’ and ‘insignificant’?

Response

Ind AS 109 does not define the terms ‘infrequent number of sales’ or ‘insignificant in value’. However, these terms have been used in the Standard in the context of determination of business model. Under Ind AS 109, generally, sales which are ‘infrequent in number’ or ‘insignificant in value’ are considered to be consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows. The Standard does not lay down any thresholds for value or number in this regard.

However, the Standard provides detailed guidance on the hold to collect business model. In 2012, IASB had made limited amendments in IFRS 9. It was to clarify the objective of the hold to collect business model by providing additional application guidance. Ind AS 109 discusses various situations including credit risk where business model may be to hold assets to collect contractual cash flows even if the entity sells financial assets before maturity. Ind AS 109 provides that frequency and value of sales due to an increase in the assets’ credit risk may not be inconsistent with a business model whose objective is to hold financial assets to collect contractual cash flows.

Accordingly, while determining the business model, management may decide the situations in which sales of financial assets occurring before the maturity date may not be considered inconsistent with the entity’s business model whose objective is to hold assets in order to collect contractual cash flows, e.g., an entity may lay down some criteria such as, if an entity sells a security which is initially rated as AAA security and subsequently, it is rated as BB, it will not be inconsistent with the entity’s business model whose objective is to hold assets in order to collect contractual cash flows because the management may want to rebalance its portfolio by selling it rather than waiting till the maturity date. There can be other situations also depending upon the facts and circumstances which need to be judged by the management.

Check Also

CA IPCC Nov 2017 Revision Lectures, CA IPCC Nov 2017 RTP, CA IPCC Mock Test Papers (MTP) & CA IPCC May 2017 Question Paper

Important Resources for CA IPCC Nov 2017

In this post, we are providing all Important Resources for CA IPCC Nov 2017 which will …